Nigeria’s Debt At $48.5bn Worrisome

Chief As Nigerian’s total debt hits $48.49 billion, more concerns are being raised over the rising level of the country’s debt, both home and abroad.

Currently, Nigeria’s external debt stock stands at $6.52 billion or N1.016 trillion while domestic debt stock hovers around $41.96 billion or N6.537 trillion, bringing total debt stock to N6.55 trillion as at December 31, 2012, according to figures on the website of the Debt Management Office.

According to the DMO, the debt portfolio of the country’s 36 states and the Federal Capital Territory, (FCT) rose from N1.42 trillion in December 2011 to N1.86 trillion by the end of June 2012. The leading debtor states in their order of indebtedness are Lagos, Cross Rivers, Bayelsa, Rivers, Delta, Imo and Kaduna. Crisis torn states of Borno and Yobe are the least indebted.

However, on the basis of debt solvency and liquidity ratio analysis relative to revenue inflow to states, Cross River is the heaviest debtor, with the highest burden rating of 138.86 per cent as at December 2011. Bayelsa and Lagos with a burden score of 104.93 per cent, and 73.21 per cent came second and third respectively.

However, the level of debt is raising concerns in the country. This is understandable as the country exited from a debt trap less than a decade ago. Before the exit, Nigerians suffered the humiliation of being a debtor nation that could not freely implement an autonomous national development agenda, a nation that had to submit her annual budgets for the approval of multilateral agencies like the International Monetary Fund (IMF) and the World Bank.

This, definitely is not the route Nigerians would like to take again. It is also exactly for the same reason that many Nigerians are increasingly worried about the growing debt profile.

The Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, had also joined in the call for caution in increase in the nation’s debt when he stated that “we are borrowing more money today at a higher interest rate while leaving the heavy debt burden for our children and grandchildren.

“For example, if you receive your salary and every day the money is not enough, you have two options to adjust yourself; either check your expenditure or check your wages.” He went on to advise the federal government not to allow “present and unborn generations inherit the heavy burden of foreign debt since Nigeria is currently in big danger because of it.”

According to the Lagos Chamber of Commerce and Industry (LCCI) domestic debt presents a much bigger challenge for the economy and this is beginning to raise sustainability concerns.

The president of the LCCI, Mr Goodie Ibru, had commented that the “cost of debt service is on the high side; in the 2013 budget the sum of N591.8 billion was earmarked for debt service. In 2012, the amount was N559.6 billion.”

To him, the high yield on the Federal Government Bond and treasury bills contributed to this level of debt service, as the amount being currently used to service debt is about 36.5 per cent of the Capital Budget of the federation.

He however noted that the debt figures provided by the (DMO) still do not capture the entire ramifications for the national debt. “For instance, debt owed to local contractors by government ministries and agencies, which run into billions of naira, are not captured.? For several years, many of these contractors have remained unpaid and some have even gone bankrupt.

“Similarly, the bonds issued by AMCON which is well over N4 trillion is also not captured. It is necessary for all these to be brought into the picture, so that the true position of the public debt and its sustainability would be better appreciated,” Ibru noted.

The DMO has however argued that the country is under-borrowed in relation to other countries and her endowments as Nigeria’s debt to Gross Domestic Product (GDP) ratio is put at less than 20 per cent, which is within the country’s long term debt sustainability ratio. Again, the composition of the debt is skewed in favour of multilateral debts rather than private/commercial debts.

The Minister of Finance was quoted as saying that “the country’s debt to GDP ratio will remain at a sustainable level of about 18.87 per cent even with the new loans,”? arguing that the “loans were not only necessary for the Nigerian economy to grow but have been negotiated with multilateral institutions on highly concessionary terms.”